Spending Bill Passes as GDP Growth Slides

The United States Senate has increased the country’s debt ceiling and avoided a default while nationwide growth remains positive, but lower than previous readings.

GDP growth fell to 1.5% in the third quarter from 3.9% in the second quarter, a slight disappointment from 1.6% growth estimates. While still positive, the sharp deceleration in economic growth suggests that the ongoing economic recovery in the United States is not as strong as some economists had previously predicted, and may indicate the beginning of a slowdown that leads to a recession.

The United States Senate has increased the country’s debt ceiling and avoided a default while nationwide growth remains positive, but lower than previous readings.

GDP growth fell to 1.5% in the third quarter from 3.9% in the second quarter, a slight disappointment from 1.6% growth estimates. While still positive, the sharp deceleration in economic growth suggests that the ongoing economic recovery in the United States is not as strong as some economists had previously predicted, and may indicate the beginning of a slowdown that leads to a recession.

The Bureau of Economic Analysis noted that the slower growth of real GDP was due to “a downturn in private inventory investment and decelerations in exports, in nonresidential fixed investment, in PCE, in state and local government spending, and in residential fixed investment.” At the same time, imports have fallen as well, indicating less demand for goods and services throughout the economy.

The fall in exports has led to controversial comments about the looming Transpacific Partnership, or TPP, a broad free trade agreement with several Asian countries that expects to boost exports.

While many economists agree with the potential of the TPP to boost foreign demand for U.S. products, previous bilateral free trade agreements with South Korea and Japan have failed to boost demand for American products in those countries. Since the FTA with South Korea began in 2012, trade with that nation has become even more imbalanced, with a larger trade deficit than before the FTA. Opposition to that FTA was vicious with violent protests throughout South Korea, although the TPP has received less attention in that country.

While the BEA saw weaker growth in the U.S. in the third quarter, it did notice accelerating income growth despite the weaker personal consumption expenditures. The rise in wages may also give support to an interest rate hike, which the Federal Reserve has repeatedly said will be a data-dependent action made only after improvements in the labor market and observed higher inflation.

Senate Signs

With the GDP data disappointing economists and politicians alike, senators have quickly passed President Barack Obama’s budget plan with a 64-35 vote a full four days before the U.S. Treasury would have run out of funds and begun defaulting on the country’s financial obligations.

Despite the broad approval, some conservatives complained of the passage, such as presidential hopeful Rand Paul, who said on the floor of the Senate “The right’s going to get more military money. The left is going to get more welfare money. The secret handshake goes on and the American public gets stuck with the bill.”

Other Republicans are claiming victory, pointing to a “more significant reform to Social Security since 1983,” in the words of Senate Majority Leader Mitch McConnell, who said the new budget had a balanced approach to offsetting government spending with cuts elsewhere in the budget.